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Old 03-11-2012, 04:27 PM   #21
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That's correct in the sense that I see no reason to put "excess" - i.e. money withdrawn but not spent in a given year - back into a long term portfolio where it is subject to market risks. Those are monies that might very well be spent in the short term, so they shouldn't be invested back in equities IMO. Once withdrawn, keep it out of the portfolio, save it for a "rainy day".

People looking to optimize what their heirs inherit may feel otherwise. But I'm not looking to have a lot left over if possible. Even gifting I would prefer to do before I die.
I have been plowing my excess back into the portfolio (or not withdrawing it in the first place). I simply earmark it as "excess" on my spreadsheet and don't consider it in calculating subsequent withdrawals. I also adjust the total excess pool up or down annually based on the growth rate of the overall portfolio. I keep a cash cushion within the portfolio that I can tap in a bad year but I figure why not let my "excess" savings sink or swim with the portfolio.
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Old 03-11-2012, 04:28 PM   #22
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I think you may have. Look at the last two years. You start with $108,585, and if you were to spend $40,000, you'd have $68,585. Pretty close, and I'll assume the difference is investment changes. But it doesn't seem realistic to have $108,585, spend $94,263 ( or $97,090?) and still have $60,993.

94 $108,585 $94,263 86.8%
95 $60,993 $97,090 159.2%
May be explained by your earlier observation and conclusion. Look for yourself, FIRECALC does not kick out actual income withdrawals or corresponding inflation so I used their default 3% inflation constant (knowing it's not right year by year) for lack of anything else to illustrate.
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You are using a fixed 3% inflation number for the 'spend' - some of those years were actually deflationary, right? Some might be much higher than 3%? Again, probably doesn't change things materially, but I wonder if the actual 'spend' numbers are available from the spreadsheet?
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Old 03-11-2012, 04:30 PM   #23
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I am curious about what the withdrawals in these same years would be if the retiree took a fixed 4% of the total portfolio out each year. It would be interesting to see side by side. Ready to modify your spreadsheet?
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Old 03-11-2012, 04:33 PM   #24
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I am curious about what the withdrawals in these same years would be if the retiree took a fixed 4% of the total portfolio out each year.
We know what you really meant...
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Old 03-11-2012, 04:39 PM   #25
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thank you midpack, for posting that table.

from earlier threads i am thinking that many here would think that if someone retired with a $500k porfolio and a $20k COLAed pension (often considered equivalent to a $1M portfolio for retirement spending purposes) there would be less worrying about the exhausting of their portfolio and reductions in WD $ over that same timeframe.

it seems to me that because of these types of scenerios (portfolio exhausting successes), buying an SPIA to cover "barebones" retirement spending would be a good plan A (especially for the people that agree with my last paragraph). i guess i dont really understand all the objections to this approach, the whole point of picking a SWR is to make sure the portfolio doesnt disappear before the retiree dies and buying a SPIA (if it is the correct size) should increase the odds of income stability and continued portfolio existance.
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Old 03-11-2012, 05:18 PM   #26
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I have been plowing my excess back into the portfolio (or not withdrawing it in the first place). I simply earmark it as "excess" on my spreadsheet and don't consider it in calculating subsequent withdrawals. I also adjust the total excess pool up or down annually based on the growth rate of the overall portfolio. I keep a cash cushion within the portfolio that I can tap in a bad year but I figure why not let my "excess" savings sink or swim with the portfolio.
I certainly understand why someone would leave excess in their portfolio. I assume it's for long-term growth reasons, which implies they are hoping for a larger end value to pass along to heirs/beneficiaries.

I, on the other hand, really don't want a larger end value. I want "just enough" and I plan to make withdrawals more aggressive as I get older if necessary.

Audrey
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Old 03-11-2012, 05:40 PM   #27
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I certainly understand why someone would leave excess in their portfolio. I assume it's for long-term growth reasons, which implies they are hoping for a larger end value to pass along to heirs/beneficiaries.

I, on the other hand, really don't want a larger end value. I want "just enough" and I plan to make withdrawals more aggressive as I get older if necessary.

Audrey
If things go well over the years, it will be interesting to see if DW and I start to splurge (1st class air fare anyone?) or just stick with our current consumption patterns. I'm not sure how we will go -- maybe a mix.
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Old 03-11-2012, 06:47 PM   #28
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I can't imagine just blithely withdrawing the inflation adjusted amount year after year like that! Whew. That would take so much courage.

Looking at the figures, it would be hard not to cut back severely for a year at age 67, and then again for an indeterminate period of time at age 77.
Can't add a thing to those comments; read my mind.
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Old 03-11-2012, 08:10 PM   #29
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Looking at the figures, it would be hard not to cut back severely for a year at age 67, and then again for an indeterminate period of time at age 77.
Can't add a thing to those comments; read my mind.
Really? I agree with the age 77 thing, but at 67? Look, the value came right back. It is totally within expectations to see this kind of volatility. If you can't accept it, you need to save up enough for a really low WR, then keep a conservative AA (and watch your buying power dwindle slowly but almost surely, rather than bounce around).

If we cut back spending at any little downward blip, we may pass up things that we can never capture again. I've been on vacations and seen older people have to pass up 90% of the real interesting opportunities because they just were not physically capable of climbing that staircase, or doing this or that.

Yep, there is a balance in all of this, but I for one (and I'm sure there are others) am so very happy that we didn't cut out things we enjoy just because the market took a dip and then mostly recovered (from the highs, it is up from when I retired at the end of 2003, as is my NW).

Yes, one must be prudent, but also be careful not to over-react to normal 'noise', or risk losing out on un-recoverable moments in life.

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Old 03-11-2012, 08:28 PM   #30
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And it's interesting to think about where on would lose his/her nerve, undoubtedly it would vary considerably.
The part I always wonder about is where to look at the graph of "remaining portfolio" vs "annuity yields" and declare "GAME OVER".

At which point would this hypothetical retiree turn himself in to the insurance authorities? Would he start buying SPIAs 2-3 years early "just in case" and to "diversify"?

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I can't imagine just blithely withdrawing the inflation adjusted amount year after year like that! Whew. That would take so much courage.
Looking at the figures, it would be hard not to cut back severely for a year at age 67, and then again for an indeterminate period of time at age 77.
I've been enjoying the discussion of the slow-motion train wreck of Raddr's fabled hapless Y2K ER.
Raddr's Early Retirement and Financial Strategy Board • View topic - Hypothetical Y2K retiree update
He picked up the story in progress in March 2005 and he's been updating it at least annually. The thread has gone on for over 300 posts, with commentary along the lines of "You hate to see that happen to a rookie" and "Oooh, that's gonna leave a mark"...
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Old 03-11-2012, 08:36 PM   #31
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When I run FIRECALC and get a 94.6% probability of success, that sounds really good - and it is [There's no such thing as 100% probability of success WRT retirement plans to begin with, just statistics].
And combined with life expectancy, the "success" rate (to end of life instead of 30 years) should be even better. Probably less than 50% chance of making it all 30 years.
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Old 03-11-2012, 08:43 PM   #32
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I've been enjoying the discussion of the slow-motion train wreck of Raddr's fabled hapless Y2K ER.
Raddr's Early Retirement and Financial Strategy Board • View topic - Hypothetical Y2K retiree update
He picked up the story in progress in March 2005 and he's been updating it at least annually. The thread has gone on for over 300 posts, with commentary along the lines of "You hate to see that happen to a rookie" and "Oooh, that's gonna leave a mark"...
Yes! Results such as the updated 2011 table in that thread (in this post) inspire me to put on the breaks when the market is down, at least until I know whether it is going down further or back up. However I need to read the thread so that I can find out more about his methodology.

In real life I might be even more conservative. I even cut back a little bit last summer when the market was enduring summertime doldrums.
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Old 03-11-2012, 08:51 PM   #33
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I'm a 1999 retiree

Fortunately, I retired with belt and triple suspenders since I retired very young. And I had investments outside of my "retirement" portfolio that I was able to draw on most years. The goal was to let it build as much as possible during the next 10 years.

Still, it's just incredible looking at the past 12 and seeing how many tough bears/corrections we have had.

Could it please be better going forward? Pretty please?

Audrey
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Old 03-11-2012, 09:46 PM   #34
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I'm a 1999 retiree

Still, it's just incredible looking at the past 12 and seeing how many tough bears/corrections we have had.

Could it please be better going forward? Pretty please?

Audrey
Yes, it sure would be nice to contemplate some of those lines in the firecalc graphs that plot their way up and up and up for our own retirements. Dreaming is nice...
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Old 03-11-2012, 10:06 PM   #35
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Big thank you to Midpack for doing the work and posting this. It is interesting to me that so many people describe the results displayed on the table as scary. I look at it and think that it is really pretty comforting. A worst case scenario runs out of money at age 95, hmmm? Okay so I am not really as tough as I talk. At age 90 when the portfolio went down to 435K I would be very nervous and would probably consider a SPIA. So I went to the USAA website to see what sort of income a 90 year old could get buying a SPIA for 435K today. The answer is 6,061.93 per month. About 11K less per year than the 83.7K income on Midpack's table for that year. In exchange for that loss of income I would get the ability to sleep better knowing that I would never be penniless with a totally depleted portfolio. I would also of course lose value due to future inflation. At age 90 would I be at the point where I really did not care too much about future inflation? I hope so. If I had lost my nerve a couple years before age 90 when the portfolio was still near 600K and bought a SPIA the results would have been nicely in favor of the SPIA.
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Old 03-11-2012, 10:50 PM   #36
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And combined with life expectancy, the "success" rate (to end of life instead of 30 years) should be even better. Probably less than 50% chance of making it all 30 years.
+1 While I plan for age 95 with the various retirement calculators, no one on my side of the family lived beyond 75 on the male side or 82 on the female side, I don't want to be penniless in my 80's or 90's, so I save and target a 3 - 3.5 SWR when I pull the plug.
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Old 03-11-2012, 11:17 PM   #37
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At age 90 when the portfolio went down to 435K I would be very nervous and would probably consider a SPIA. So I went to the USAA website to see what sort of income a 90 year old could get buying a SPIA for 435K today. The answer is 6,061.93 per month. About 11K less per year than the 83.7K income on Midpack's table for that year. In exchange for that loss of income I would get the ability to sleep better knowing that I would never be penniless with a totally depleted portfolio. I would also of course lose value due to future inflation. At age 90 would I be at the point where I really did not care too much about future inflation? I hope so. If I had lost my nerve a couple years before age 90 when the portfolio was still near 600K and bought a SPIA the results would have been nicely in favor of the SPIA.
Good to know the numbers. Thanks for doing the research!

A 90-year-old shopping for SPIAs must attract the annuity salesmen from three time zones...
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Old 03-11-2012, 11:27 PM   #38
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I strongly suspect the chance of me living to 90 is fairly slim.

And if I get there, I also do not think I would remember what SPIA means.
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Old 03-11-2012, 11:29 PM   #39
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Good to know the numbers. Thanks for doing the research!

A 90-year-old shopping for SPIAs must attract the annuity salesmen from three time zones...
Priceless!
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Old 03-12-2012, 03:08 AM   #40
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Interesting question. I have been playing with my spreadsheet using different annuity scenarios. Mathematically, in my case (small pension, no SS), buying small annuities every year with monies not spent makes more sense.
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At which point would this hypothetical retiree turn himself in to the insurance authorities? Would he start buying SPIAs 2-3 years early "just in case" and to "diversify"?
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